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Dec - Inflation, Money & Banking System - Coggle Diagram
Dec - Inflation, Money & Banking System
Long Term Repo Operation
mechanism
to inject liquidity
into banking system
ensure
smooth transmission of monetary policy actions
flow of credits
into economy
RBI
Provides longer term (1-3 years)
loans to banks
at prevailing repo rate
in return to provide
government securities as collateral
demand
for Govt Bonds increase
help in lowering yield
banks get
long-term funds
at lower rates
in turn
reduce interest rates
for borrowers
LTRO help
RBI to ensure
banks reduce
their marginal cost of funds
based lending rate
without reducing
policy rates
showed the market
RBI not rely on revising repo rates
and conducting
open market operations
for its monetary policy
Targeted Long-Term Repo Operations
banks
can invest in specific sectors
through debt instruments
to push credit flow
in the economy.
RBI
wants banks opting
for funds under this option
specifically invested
in investment-grade corporate debt
KV Kamath Committee
RBI formed 5member committee
make recommendations
on financial parameters
considered in restructuring of loans
impacted by COVID
Monetary Policy Committee
under RBI Act, 1934
statutory and institutionalised framework
amended by
Finance Act, 2016
provide for maintaining
price stability
Constitution of MPC
3 members from RBI
3 members
appointed by CG
Task of MPC
fixing benchmark policy rate (repo rate)
required to contain
inflation within
specified target level
Persistent high inflation
Faster retail inflation
prices of household items
rising quickly
often referred
"tax on the poor"
low-income stratum of society
bears the brunt
poor household
often forced to sharply reduce
Overtime
if unchecked
inflation erodes
value of money
hurts several other
segments of population
include
elderly living off and
a fixed pension
ends up
undermining a society´s
consumptive capacity
Devaluation
leads to decline
in value of currency
making
exports more competitive
and import
more expensive
contribute
to inflationary pressures
because
higher import prices and
rising demand for exports
Exchange rates determine
international purchasing
power of residents abroad
devaluation sig
reduce overseas purchasing
power of a nation's citizens
import
become costlier
leading to rise
consumption of local products
hence
domestic inflation
purchasing power
back home also decreases